The problem is not the "honorary ranking", rather it is the person. I strongly suspect that your sensei is now in the difficult position of having to explain to this person their responsibility to reflect well on the dojo because of their "honorary shodan".
From my perspective, this person betrayed the trust your sensei put in them in conferring this "honorary" status on them.
"Honorary" degrees are meant to honor the person because of their achievements, they do not convey skills or knowledge. Our current president can receive all of the honorary doctorates from Yale he wants, yet he will not be one lick "smarter" than before.